TEXAS is expected to make it harder to use an ownership structure that many companies with projects in the state use to reduce their taxes

TEXAS is expected to make it harder to use an ownership structure that many companies with projects in the state use to reduce their taxes

February 01, 2003
TEXAS is expected to make it harder to use an ownership structure that many companies with projects in the state use to reduce their taxes.

The state is facing a budget crisis.  Governor Rick Perry (R.) told reporters in late January that it is “not appropriate and not right” for corporations to use the structure. “I think the legislature feels as I do — that it should be closed.”

Texas collects a franchise tax from companies doing business in the state, but there is no tax on limited partnerships.  Therefore, most companies own projects in Texas through limited partnerships.  Any franchise tax in that case is collected from the partners.  However, a “foreign” limited partner — for example, an out-of-state company — is not normally subject to Texas franchise tax because the state has conceded that such a partner has no “nexus” in Texas that would enable the state to tax it.  Thus, most limited partnerships are set up with the limited partners owning 99.9% and a general partner owning 0.1%.  This reduces the share of income subject to Texas franchise tax effectively to 0.1%.

The Texas comptroller of public accounts warned on January 13 that the state is facing a budget shortfall of $9.9 billion.

Independent power companies that are locked into long-term contracts to sell their electricity at fixed prices are worried that they will end up with sharply higher tax costs without any ability to pass them through to their purchasers.

Keith Martin